This week, the Biden-Harris administration announced an action plan to address racial and ethnic bias in the homebuying process in order to make home valuations fairer for Black and Brown homeowners.
- The Biden-Harris administration this week announced the PAVE Action Plan to address racial bias in home valuations.
- Homes in majority-Black and Latinx neighborhoods are about twice as likely to receive a lower valuation during the appraisal process compared to those in predominantly White neighborhoods.
- Today, the average White family has eight times the wealth of the average Black family, and five times the wealth of the average Latinx family.
- The property appraisal and assessment profession is currently 98% White, according to the Bureau of Labor Statistics.
Dubbed the PAVE Action Plan, the initiative was developed by the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE)—a federal division formed by the Biden administration in June—to eliminate bias during home appraisals. Discriminatory practices in home valuations have left homes in Black neighborhoods frequently undervalued, according to the White House, and that not only diminishes the opportunity for these households to reap the benefits of homeownership, including building multigenerational wealth, but also further expands an already vast racial wealth gap.
The PAVE Action Plan outlines a series of commitments and actions (most using existing federal agencies) to ensure housing valuations are free of racial biases and promises to “help every American to have a chance to build generational wealth through homeownership.”
These PAVE Action Plan commitments and actions include:
- Having a federal agency oversee the appraisal industry to ensure it is following anti-discrimination regulations, as it has historically been self-regulated and lacks transparency
- Implementing new policies and providing support for consumers to appeal an initial home valuation that is lower than expected
- Improving diversity in the appraisal industry, and making the profession more accessible by getting rid of unnecessary job requirements that make it harder for underrepresented groups to get hired (currently, the appraiser and assessor profession is roughly 98% White, according to the Bureau of Labor Statistics)
- Strengthening anti-bias, fair housing, and fair lending training to existing appraisers
Home appraisals are a critical part of buying, selling, or refinancing a home. During the appraisal process, an appraiser will inspect aspects of the property (such as the overall condition, location, and features) and estimate the market value of a home by comparing it to other recently sold properties in the area.
Although appraisers are supposed to provide fair, unbiased home valuations, a recent report by Freddie Mac estimates that appraisals for homes in predominantly Black and Latinx neighborhoods were around twice as likely to be valued below the actual contract price compared to appraisals for homes in neighborhoods with a majority of White homeowners. A low appraisal reduces the market value of a home and can lower the amount a bank will lend, which could jeopardize the sale.
According to the White House, since its launch last year, the PAVE Task Force has received “numerous reports” of Black homeowners receiving higher appraisals on their homes after taking down their family photos and having White families represent them during their appraisals instead. Appraisals that result in higher property values means homeowners will have more home equity, which is important for building wealth and achieving financial security. Lower property values, however, can hinder a family’s ability to leverage home equity in times of financial hardship, or even to pay for college or home repairs.
The PAVE Task Force is co-chaired by Department of Housing and Urban Development Secretary Marcia L. Fudge and Domestic Policy Advisor Susan Rice. It promises to continue working with lending institutions, philanthropy groups, academia, and civil rights groups, and advocates to take on the issue of racial equity in the U.S. housing market.